Saturday, July 30, 2011

Capital Gains and Losses

According to Rismark, the median capital return to property owners since 1990 has been 7.8% per year.

Over the last 20 years, 9.3% of all home owners traded their property for a loss (note that these are pure capital returns, and ignore the rental income that you would have got along the way). This is also gross of all transaction costs, so you can be sure that the net number is higher. Ipso facto, about 90% of owners realise positive gross capital returns on their homes before accounting for rents and costs.

These returns reflect the change in the capital value of a home over time. What they do not tell us is what the home owner’s actual equity, or geared return, would have been. We can comfortably assume that the equity returns are far higher (likewise the losses for the one in 10 folks who get unlucky).

This analysis excluded gross rents, which are currently around 4% to 5% per annum. It also ignores all transaction costs, which sum to around 1% to 2% per annum for the average home owner who stays in a property for seven to eight years.

Source: Chris Joye in Property Observer

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